Quiz 24: Price-Searcher Markets With High Entry Barriers

Business

Barriers to entry indicate that the industry puts up restrictions on producers to enter into the market. As a result only a few players enter the market and are thus able to earn long run profits. However, these restrictions do not guarantee the existence of profits because even in an industry with a few players, anything can go wrong and firms can experience losses for some time period. In fact, there is no rule or technique which can guarantee profits to any industry.

Monopoly is a situation where there is only one supplier in the economy. This gives an unfair advantage to the producers to charge high prices from the consumers and thus earn super normal profits. However, this leads to losses for consumers as they have to pay high prices for products. Although the gains from the former offset the losses of the latter, such a price differentiation leads to an unequal distribution of income from the consumers to a few producers. Thus, it cannot be concluded that monopoly is good for an economy.

Monopolists will charge higher price for which they sell product as they are the only supplier of the products. They set price as per their own benefit. As a result they always maximize their average profit and it's only possible when market is monopolist or oligopoly. Monopolistic firms are profitable because of the super normal profits they are able to earn from selling their products in the market. However in certain situations the good is not accepted by the consumers which leads to huge losses for the firm. Thus, it cannot be said that monopolistic firms are always profitable.

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